Union Gaming Macau released the following note on Thursday, 25th October:
Wynn Macau reported 3Q12 results overnight. Net revenues declined 4.3% to USD951.4mm, while EBITDA declined 1.3% to USD296mm and compares to StreetAccount consensus of USD294mm and our expectations of USD290mm. The top line decline was driven by lower gaming volumes across all segments, while higher than expected hold (VIP and mass) resulted in a slight EBITDA decline on favorable segment margins.
Importantly, management projected confidence with respect to the outlook on the VIP market, namely that it appears to have stabilized and that increased credit is being injected into the system market-wide. This, in addition to new junket space coming online at Wynn Macau at the beginning of November, could disproportionately benefit Wynn Macau relative to some of its peers given the company’s higher-than-average VIP revenue mix (76% VIP GGR mix YTD).
We visit the company’s Cotai project site on a weekly basis and have witnessed increasing levels of activity on site. As noted on today’s call, much of the current construction work is related to site preparation and piling work is expected to begin towards late November. With this in mind, and considering an expected 3+ year build cycle, the property should be in a position to meet the company’s target of opening in time for Chinese New Year 2016 (February 8).
While we love the long-term story in Macau as a whole, we believe Wynn Macau is likely in a period of below-market-average-growth over the near term. This is driven by a number of factors, including limited visibility on a VIP GGR inflection (and consensus expectations for very modest 2013 growth), ongoing capacity constraints at its current Macau peninsula complex, and the company’s lack of exposure to Cotai and the company’s limited exposure to the fast growing mass market segment.
Segment analysis
VIP
VIP gaming volume declined 12.1% in 3Q12, although hold of nearly 3.1% (vs. the expected range of 2.7% to 3.0%) resulted in VIP GGR down 8% y/y. This was the second consecutive quarter of notable VIP volume declines, although the one-two combination of new junket space for the last two months of 4Q12, in addition to general VIP stability throughout the market, should help to stem the tide. We are projecting flat VIP volume in 4Q12 and single digit growth in 2013.
Mass tables
Like the VIP segment, 3Q12 was the second consecutive quarter with a y/y decline in mass market table gaming volume. Drop during the quarter declined 2.6%, while a record hold rate of nearly 31% resulted in an 8% increase in mass market table GGR. We expect this segment to post modest growth relative to the market as a whole in 2013 due to capacity constraints at the property.
Slot machines
Slot machine gaming volume declined 13.2% during 3Q12, while win / day declined 10.9% (fewer machines on the floor). We believe that a notable portion of the decline in gaming volume was a result of some high-end (VIP) slot machine play migrating to other in-market operators.
Revising estimates
We are revising our forward estimates for Wynn Macau to reflect 3Q12 results and our current views on the market. We are lowering our 4Q12 EBITDA estimate slightly (HKD1,948mm from HKD2,019mm), while our 2013 EBITDA estimate goes to HKD8,894mm, from HKD8,949mm (-0.6% change). These changes largely contemplate continued softness / slower growth in the VIP segment, as well as capacity constraints on the company’s mass market segment.
